On the hourly chart, the GBP/USD pair reversed its course near the level of 1.2336 (former 1.2342), favoring the US currency, settling below the ascending trend corridor and the corrective level of 161.8% (1.2250). The decline concluded around the level of 1.2175, where a bounce occurred. However, there was no significant rally, and this morning, the British pound is once again poised for a drop. Closing the pair below 1.2175 will allow traders to anticipate further declines towards the next levels at 1.2112 and 1.2039.
Despite the British pound's drop of 140 points yesterday, the bullish trend has not shifted to bearish. The pair experienced a decline to the level of 1.2175, where the low of the last downward wave is located. The low hasn't been breached, so there are currently no signs of the bullish trend coming to an end. But they could emerge today if the bears push through the level of 1.2175. Doing so will be more challenging today than yesterday because the information backdrop is very weak. However, I must admit, I did not anticipate such a significant drop in the pair either, neither before nor after the inflation report.
The reason for this unexpected move can be quite simple: the bears have launched a counteroffensive since the long-term trend is bearish. After the bulls had corrected the pair, it is now time for the bears to make a new downward move. Today's information backdrop will be very weak, allowing us to observe the bears without the influence of external factors.
On the 4-hour chart, the pair briefly settled above the 50.0% Fibonacci level at 1.2289 but then quickly fell. A strong bearish divergence in the CCI indicator greatly aided in this, and consolidation above the descending corridor did not occur. However, a bullish divergence in the CCI indicator is now becoming evident, which could favor the British pound and lead to a resumption of growth with a close above the level of 1.2289. Both pairs currently present a complex and tangled technical picture.
Commitments of Traders (COT) report:
The sentiment among "non-commercial" traders in the past reporting week has once again turned less "bullish." The number of long contracts held by speculators decreased by 10,839 units, while the number of short contracts increased by 11,510 units. The overall sentiment of major players has shifted towards "bearish," and the gap between the number of long and short contracts is widening, but this time in a different direction: 73,000 versus 80,000. In my view, the British pound still has excellent prospects for a decline. I do not expect a strong pound sterling rally in the near future. I believe that over time, the bulls will continue to unwind their buy positions, just as they did with the European currency. Only a close above the descending corridor on the 4-hour chart would make me consider a new "bullish" trend.
News Calendar for the USA and the UK:
USA - University of Michigan Consumer Sentiment Index (14:00 UTC).
On Friday, the economic events calendar contains one less important entry. The impact of the information background on market sentiment today may be very weak.
GBP/USD Forecast and Trader Recommendations:
Selling the British pound was possible when it closed below the ascending corridor on the hourly chart, with targets at 1.2250 and 1.2175. Both targets have been reached. New sales of the British pound are possible upon closing below 1.2175, with targets at 1.2112 and 1.2039. Buying opportunities may arise upon a bounce on the hourly chart from the level of 1.2175, with targets at 1.2250 and 1.2336.